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Weekly Economic Commentary

Monday August 29, 2016

The housing market in Sydney and Melbourne has sprung into action following the most recent RBA official cash rate cut. While the rate cut was a few weeks ago now, it takes some time to filter through to creating an impact on the household’s hip pocket.

Nonetheless, recent data shows that auction clearances were up at 83% and 74% in Sydney and Melbourne respectively last week and while the volume of auctions remains down on a year ago, this may be a concern for the RBA given they recently assessed that the risks from housing had “diminished”.

House prices have started to rise again and the real question is whether this can accelerate on the back of these strong auction clearance rates. It’ll be interesting to watch how this unfolds. Aside from the implications for future monetary policy, how house prices perform is important for consumer spending – particularly in a low wage environment where spending rarely accelerates if house price growth is moderating. Only time will tell.

Markets still have one full rate cut priced in by mid next year (chart below).

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